The State of the Healthcare Supply Chain 2013

"The patient is stable, but we're keeping a good eye on her." That's O'Daffer's assessment of the condition of the healthcare supply chain in 2013. He noted that large health systems are experiencing a decline in revenues of between 2 and 3 percent. The reason, he said, is an apparent drop in the number of patients coming to facilities, coupled with the fee-for-service model under which most providers continue to operate.

The industry is bracing itself for implementation of the Affordable Care Act, which has raised many questions about its long-term effect on provider revenues. "Over the next 10 years," O'Daffer said, "most organizations think total net revenue will drop 10 to 20 percent."

The trend is putting more pressure on suppliers. At the same time, providers are attempting to align themselves with patient outcomes. In the process, they are burrowing more deeply into hospital operations through the use of strategic sourcing.

Working backward from patient care presents a number of challenges. Providers have a finite amount of resources, O'Daffer said, and must avoid "getting squeezed on the cost side."

Meanwhile, the healthcare industry is undergoing a new wave of mergers and acquisitions, of which there were 92 in the prior year alone. Organizations in local markets are striving to survive and build their capabilities, largely through improved supply-chain management.

Some manufacturers are hoping the problems will just go away. Others are seeking to collaborate more closely with providers. O'Daffer's report card for industry's efforts to date: "A gentleman's C-minus. I believe there are some good intentions, but cultural barriers have distracted [providers] a bit."